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By Thomas Muellner
If you’re one of the millions of Americans who doesn’t have the benefit of an employee-sponsored retirement account, saving for the future just got a little easier.
Thanks to the recently unveiled myRA savings account, a new type of Roth IRA created by the United States Department of the Treasury, workers who don’t have access to a traditional retirement savings program can start adding to their nest egg through a simple, safe account backed by the Federal government.
While it’s not a substitute for a comprehensive retirement savings plan, the new myRA is primed be a helpful stepping stone for a growing cohort of new investors. But is it the right fit for you?
It’s no secret that saving money for retirement is a daunting task. It can be especially difficult if you work multiple jobs, have part-time hours or depend on project-based income to make rent. As a result, an alarming number of U.S. workers have simply put off saving for retirement. According to a recent report from the Federal Reserve, 31 percent of the U.S. workforce has no pension or retirement savings.
Though the situation may seem ominous, there is hope. Experts agree that getting into the habit of saving for retirement early on - even if it’s just a few dollars a month - can be a critical first step to achieving long-term financial stability. So, if you’ve been waiting for a nudge to start saving for your golden years, the myRA may be what you need to get the ball rolling.
Similar to a standard Roth IRA account, the myRA can help you build your retirement nest egg by deducting a portion of your income to go specifically toward your savings. However, unlike retirement savings accounts connected to credit unions or banks, which typically offer a range of investment options, myRA accounts are fully invested in a special low-risk United States Treasury retirement savings bond. The account is guaranteed not to lose money and is eligible to earn a modest amount of interest over time.
The bond associated with the myRA offers the same return on investment as the Government Securities Fund, which earned a 3.19 percent return over the ten-year period ending December 2014. Because of this, the myRA is best suited for younger investors who need to jumpstart their savings.
Compared to traditional retirement savings options, which can see a 5-6 percent rate of return but carry more risk, the myRA’s 3-ish percent rate of return functions more like a standard savings account than a robust retirement portfolio.
There’s no cost to open a myRA account; it requires no minimum balance and there are no annual fees.
What’s more, the plan isn’t directly tied to your employer, so there’s no impact to your account if you switch jobs or work more than one company. However, you still have the luxury of contributing funds from your paycheck through direct deposit, as well as through your checking or savings account and federal tax refund, if you choose. You’re also fully vested from the beginning.
While the myRA is flexible, there are some important ground rules be aware of. Once your investment reaches $15,000 or is active for 30 years (whichever comes first), you’re required to convert the account to a Roth IRA through a private financial institution. Additionally, you can only contribute $5,500 to the account each year ($6,500 per year if you’re age 50 or older). Lastly, you’re free to withdraw the cash you put into the account tax-free and penalty-free at any time, but interest earned is subject to the same restrictions as Roth IRA accounts.
Before setting up a myRA savings account, or any new account, it’s best to consider your options and make sure the program is aligned to your personal financial goals. If you have earned income that does not exceed $131,000 per year, you’re eligible for a myRA; however, it may be an especially attractive investment option if you meet any of the following criteria:
On the other hand, if you’ve already started saving for your retirement and want access to a full range of investment options, an account through a credit union or other financial institution may be the route for you.
For complete information on the myRA account, visit myRA.gov.